Housing slowdown hasn’t segued into renting boom

Alex Gary

Monday

Sep 29, 2008 at 12:01 AMSep 29, 2008 at 11:31 PM

The housing boom from 2002 through early 2007 that lifted homeownership to historic levels had one clear casualty: the owners of rental properties. Now we're in a market that should put those apartment owners on top of their game again, but some owners of rental properties are saying that's not the case.

The housing boom from 2002 through early 2007 that lifted homeownership to historic levels had one clear casualty:

The owners of rental properties.

Apartment owners were losing their best tenants in the home-buying frenzy, leaving scores of units either unfilled or rented to those with shaky payment histories.

But now, taxpayers are paying for that housing boom, which was largely built on extending credit to people who really couldn’t afford their homes. And families are losing houses to foreclosure in record numbers.

It’s a market that should put those apartment owners on top of their game again. After all, people have to live somewhere.

“That’s what we thought,” said Evelyn Doty of Five Points Rentals and Property Management, which manages about 600 rental units in the area. “But our vacancy rate is higher now than it was last year.”

Doty believes families are doubling up — moving in with friends or relatives — or leaving the Rockford area because of the rising jobless rate, which in August reached 9.5 percent for Boone and Winnebago counties and 10.9 percent in the city of Rockford.

The struggling economy reminds Doty of the early 1980s, when Five Points became a rental company. Evelyn and her husband started the business in the early 1970s as a real estate sales and development company. But in the early 1980s, when unemployment soared above 25 percent in Rockford, a new business line opened up.

“We had 20 years worth of clients we’d sold houses to now wanting to sell and move out of town,” she said. But the housing market had fallen apart. “Mortgage rates were at 18 percent. Nobody was buying, so we started finding renters for the properties.”

A lack of qualified applicants has kept property owners from being too aggressive in raising rents, which have been fairly flat this decade because so many renters were leaving to buy their own homes, she said.

The Register Star’s Sunday real estate section confirmed her observations. Advertised rents in Boone and Winnebago counties have gone from $583 on average in September 2007 to $620 in September 2008, a 6.3 percent increase.

“They don’t want to lose any more tenants, so what I’m seeing is everyone just factoring in the property-tax increase and dividing by 12,” Doty said.

But she’s noticed one interesting trend.

“The buildings we manage with coin-operated laundry, the money coming in from those is down 30 percent. Our owners have been calling, telling us to get them fixed. We did some investigating and found out that they are working, it’s just that the tenants are choosing to put that money in the gas tank instead of cleaning their clothes.”

Paul Arena, president of the Rockford Apartment Association, said the rental market can be broken into the same three segments as society: upper end, middle income and lower income. Apartment owners with high-end units are having little trouble filling vacancies.

“That’s where you are seeing the families who lost houses to foreclosure,” he said. “They can afford a little higher rent, a slightly bigger place in a better neighborhood.”

Arena said the lower-rent areas remain largely unchanged this decade. Those renters weren’t going to qualify for home loans no matter how loose the standards. It’s the middle-income renter — the ones looking for a $550- to $750-a-month place to live — he can’t figure out.

“I expected to see more quality renters in the market. It’s really disillusioning to fix up a place nice and get 15 applications and none of them qualify.”

Ricky Davis Sr., part owner of Stateline Rental Properties, which manages about 160 units in the area, said the slumping housing market continues to hurt apartment owners.

“There are more than 3,600 houses on the market, and what we’re seeing is more people putting their houses up for rent,” he said.

Statistics from the Winnebago County supervisor of assessments seem to bear that out. Property owners who live in their homes qualify for an owner-occupied exemption on property taxes. In Winnebago County in 2006, 81,055 people received the exemption. That increased in 2007 to 82,329, but this year it dropped to 81,257.

Bev Campion, the supervisor of assessments, said the 2008 decrease is unusual because more houses are typically added to the tax rolls each year.

Davis also has seen a noticeable slowdown in rental applications in the second half of the year, and some of it is because people may be moving in with friends or family.

The lack of renters means Davis and other property managers or apartment-building owners are back to offering incentives to put people in long-term vacancies.

“We’re offering gas cards and food cards to get people to move in,” Davis said. “We offered discounted rent for six months to get them in. (For) the marginal properties, you still have to do something. A year ago, I wouldn’t have thought we’d need incentives.”

Alex Gary can be reached at agary@rrstar.com or (815) 987-1339.

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